Pay per view: Web sites seek deals with ISPs

Major Web publishers and Internet service providers are
discussing a new content distribution model that could
change the way
consumers pay for Internet access and information.

High-profile sites including ESPNET SportsZone, CNN,
Hearst HomeArts and Sportsline USA, and major ISPs such as
CompuServe, Prodigy, Sprint, AT&T Corp. and MCI
Communications Corp.
are engaged in a variety of discussions under which the
ISPs
would pay content sites to supply premium material for
their
services.

The ISPs would then take a page from the cable TV industry's
history and bundle the content into packages, or
tiers.

DRAMATIC SHIFT IN PRICING

The end result could be a dramatic shift in Internet access
pricing, where consumers pay not only by usage, but also by
the
information they want to receive and the activities they
engage in.

"Much like the cable TV industry today, there will be 'must
have' brands," said Kenneth Dotson, VP-marketing with Sportsline,
which is negotiating premium packaging deals with major
ISPs. "Such 'must have' brands can expect to receive some
form of
compensation from ISPs/online services in return for
their discounted
access to premium content."

Signs of an impending shift are rampant. America Online
last week was the target of a class action lawsuit charging
that
its current $19.95 flat-rate pricing is causing traffic
jams
and leaving countless thousands of users unable to access
the
service. Bloomberg last month reported that AOL is
considering
tiered pricing for parts of its service.

CompuServe and Netcom Online Communication Services,
meanwhile, have already vowed to stay out of the $19.95
morass, saying
there's no revenue in that model.

WANTED: SUBSCRIPTION REVENUE

Enter the content providers, which are desperate for a
workable subscription revenue stream. Most sites derive
100% of
their revenue from advertising; analysts predict it will
take
three years before subscriptions will account for even
30% of
revenues.

Early stabs at subscription plans have shown mixed
results. Microsoft Corp. Web zine Slate on Jan. 11
cancelled plans to convert from a free to a paid
site. Playboy
has
repeatedly delayed its planned rollout of a subscription
area, though
it attributes the problems to building a back end, not
questions about subscriber demand.

MTV Online, meanwhile, took the presumptuous step of
sending letters to ISPs across the country late last year,
demanding that they pay up--or be shut out of the MTV site entirely.

A Viacom spokeswoman confirmed that MTV Online was in
continued discussions with as many as a dozen national
ISPs about
"strategic partnerships." MTV doesn't plan to charge
subscribers for
content in the near future, she said.

NEW REVENUE STREAMS

Major media sites and ISPs say a modified version of MTV's
revenue model is definitely in the works.

"We're in conversations with ISPs in a number of different
angles, and certainly bundling [of premium content] is
one of the
things that's being discussed," said Rich LeFurgy,
VP-marketing
and advertising with Starwave Corp. "It's the next wave of
revenue generation for the entire industry."

If this sounds like deja vu, you're right, to a degree.
Major media companies like Time Inc. and ESPN built
proprietary
areas on the online services, only to cancel them or scale
them
back when their Web efforts picked up steam. This time,
though,
the content is all Web-based, and no content provider is
willing to do an exclusive deal.

Some sites, including SportsZone and Sportsline, already offer premium areas for about
$4.95 per month and are using that content as leverage in
negotiating the ISP "carriage" deals. Other Web sites,
such as CNN and Hearst HomeArts, don't
yet have a premium product.

ISP PAYS CONTENT SITES

One of the most commonly discussed scenarios involves an
ISP paying a content site a few cents per month, per
subscriber,
for the right to offer specialized content to its users.
The ISP
could offer the content as an added value in the basic
service
package or bundle it and charge a premium price.

"We do anticipate the introduction of parts of HomeArts as
subscription-based this year. One of the things we'd like
to do is approach ISPs
about charging for that content," said Brian Sroub,
VP-marketing at HomeArts.

RESELLING CONTENT

An ISP also could become a reseller of premium content,
taking a cut of the subscription price from each
participating
site. Sharing ad revenue based on subscribers sent to the
site is
another possibility.

Sprint is discussing tiered pricing and delivery of
premium content with MTV and others, said spokesman Jeff
Shafer.

"We're looking at tiered approaches, and certainly
there's merit for them in both the ISP and the content
provider," he
said.

Despite the activity, some say tiered pricing won't work
for online services, which don't have the same kind of
monopoly
access to the home that cable operators do.

"The cable industry found out in the early '80s that if you
tier too much, people just turn off. They don't get it,"
said
Martin Nisenholtz, president of The New York Times
Electronic
Media Co.

'NO CREAM'

"The ISPs don't have any money to throw around," said Bill
Doyle, analyst with Forrester Research. "The content
providers
think they might be able to skim some cream off the top, but
there is
no cream."